Transcript Public Utilities Commission of Sri Lanka

Regulatory Environment
and Small-hydro
Development
Professor Priyantha D C Wijayatunga
Public Utilities Commission of Sri Lanka
and University of Moratuwa
Presentation Outline
Introduction
 Public Utilities Commission of Sri Lanka
 Regulatory agency Objectives
 Functions
 Framework for Small-hydro development
 Policy and Regulatory interventions
 Final remarks

Introduction
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Traditionally Policy-making, regulation and
operations
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In most cases line-minister regulates
Increasing trend to separate these functions
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Not clearly separated
Assist development of the power sector
Also renewable energy industry
In Sri Lanka Public Utilities Commission
established to take over regulation of the
electricity industry
Public Utilities Commission of Sri Lanka
Established under the Public Utilities
Commission of Sri Lanka Act, No. 35 of
2002
 A multi-sector regulatory agency
 First of that kind in the region
 Electricity and water industries
 Down-stream petroleum industry later
added
 Not yet fully empowered
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Public Utilities Commission of Sri Lanka …

Independence ensured through

Process of appointing and removal of
members
 Constitutional

Council and Parliament
Financing
 License
fees
 Regulatory levies

Transparency
 Stakeholder
consultation
 Publication of orders and advice provided to te
government
 Annual report to the parliament
Objectives of a Regulatory Regime
Protect the interest of all consumers
 Promote competition where appropriate
and possible
 Promote efficiency in both the operations
of, and capital investment in public utilities
industries
 Promote efficient allocation of resources in
public utilities industries

Objectives ….
Promote safety and service quality
 Benchmark utility services against
international standards
 Ensure that price controlled entities acting
efficiently, do not find it unduly difficult in
financing its activities
 Eventually leading to investor and
consumer confidence in the utility sector
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Functions
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Advice the Government on industry policy on
all matters concerning any industry falling
within its purview
Collect, record, analyze and disseminate
information with an informed opinion,
concerning any public utilities industry
Exercise licensing, regulatory and inspection
functions
Regulate tariffs and other charges levied by
regulated entities
Functions ….
Mediation in disputes arising in any public
utility industry
 Set and enforce technical and other
standards relating to safety, quality,
continuity and reliability of the public utility
industries
 Consult any person or group affected by
its orders when taking it decisions
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Framework for Small-hydro
Development
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Indigenous resource replacing imported fuels
Recognition of avoidance of adverse
environmental impacts
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Emissions with local impacts
Those impacting globally - GHG
Recognition of avoidance of high cost
generation
National resource as a primary energy source
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Royalty
Benefits flowing to local population
Framework for ….
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Recognition of pioneering efforts
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Site allocation
Minimum transaction costs encouraging
small investors – large number
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Standardised arrangements
Adequate compensation for generation
costs and incentive to operate efficiently
 Minimum impact on consumer price
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Bidding for capacity allocation
Policy and Regulatory Interventions
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Renewable energy portfolio standards
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Utility compelled to achieve given level of
penetration
 10%
of supply by NCRE by 2015
 Portfolio of technologies
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Additional burden on the utility
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Provided by the central government
 Final
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Economic impact needs to be justified
Or financed through cross-subsidies
 Impact
on the final consumer price
Policy and Regulatory …..
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Feed-in tariffs
Standardised tariffs
 Encourage all those having costs below feedin tariff
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Investment incentives
Overcome high investment cost barrier
 Increased investment
 Tax credits on investment
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Policy and Regulatory …..
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Production incentives
Attractive tariff
 Efficient operation
 Tax incentives for a given period
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Net-metering
Encourage low cost development and use
 Energy banking
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Research and development
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Incentives for research
Policy and Regulatory …..
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Competitive bidding
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For a given allocation within a pre-specified
penetration level
 For
supply price
 For royalty at a given supply price
Pricing Methodologies
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Cost based tariffs
Technology specific
 Can be project specific or based on a typical
project
 Covers costs of the investor including a
reasonable rate of return
 May be more than the average cost of
conventional generation
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 Subsidies
to be determined
 Who pays for subsidies?
Pricing Methodologies …
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Shadow/opportunity cost based tariff
Avoided cost in the central generation system
 Credit for avoided environmental cost may be
given
 Can be long-term or short term
 Can be average or marginal
 Technology/resource independent
 Convenient implementation hence low
transaction costs
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Pricing Methodologies …
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Efficient low cost projects reap windfall
profits
No adverse impact to the utility
 Increased investment
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 Developers
likely to reinvest in other not so
efficient projects
Pricing Methodologies …
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Fixed price published examining the
average generation cost
No direct relation to cost of projects or
avoided cost in the central system
 Can be adjusted from time to time depending
on

 the
response of the developers
 Or government policy

Convenient to implement and hence minimum
transaction costs
Implementation Strategy
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Government policy passed down to the regulator
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Eg 10% of supply by NCRE by 2015
Regulator implement the policy
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Licensees ordered to abide by the penetration level
Flexibility can be left with the utility how to ensure the
level of penetration
Can be given the parameters such the pricing
methodology etc
Can be a higher level of intervention by even
approving prices
Direct subsidy or cross-subsidy examined in tariff
determination
Final Remarks
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Unaccounted benefits of small-hydro needs to
be always considered when making decisions
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Avoided adverse environmental impacts
Socio-economic benefits to the local community
Indigenous nature of investment
A separate regulatory agency
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Provides a place for all the stakeholders to come for
their grievances
Can mediate for speedy resolution of issues for fast
development of the renewable energy sector
End